CONSUMER REPORT

The Tour Goes On Even if the Operator Doesn't : Tours: A form of insurance protection for travelers places funds in escrow until after trip is concluded.

The issue of protecting travelers who purchase package tours has surfaced in recent years after several major tour operators went out of business, in some cases leaving passengers stranded abroad and without refunds. When one prominent Southern California tour operator, Encino-based Hemphill-Harris Travel, ceased operations in 1989, as many as 200 tour passengers were left as far afield as Japan, India and Australia, while other tours were canceled without refunds. Estimates have put the overall financial loss to consumers at between $800,000 and $1.5 million.

The Travel Funds Protection Plan, developed last summer by the First of America Bank in Detroit, is a form of tour protection for travelers who purchase package tours. Last February, it was endorsed by the American Society of Travel Agents (ASTA).

Here's how the plan works: Travelers make out their tour payments to an escrow account handled by the First of America Bank. The travel agent handling the booking then sends the payment to the tour operator involved, who records the sale and sends the money on to the bank. From then on, the First of America Bank is in complete charge of the consumer's money. The idea is similar to the practice of charter operators who have been putting passenger payments for charter flights into an escrow accounts, as required by the Department of Transportation.

"We feel this program is revolutionary in the sense that it offers the consumer a 100% guarantee on a major part of his expenditures, should there be any problem," said Andrea Rice, a spokeswoman for ASTA. "This is a true escrow fund. Unlike other so-called escrow programs where a tour operator has access to travelers' funds, or deposits are commingled with an operating account, the Travel Funds Protection Plan requires that the escrow account be composed entirely of travelers' money. None of the consumer's money for land costs can be taken out by the tour operator until services are delivered."

Specifically, it's not until five business days after services have been delivered--after the tour is concluded--that the bank releases payment covering land-related costs of a tour, such as hotels and sightseeing, to the tour operator. As for the air portion of the packages, the plan calls for the bank to pay the airline in advance for any air tickets, using money from the total consumer payment. If the airline ceases operations before the bank remits payment to it, or the tour operator defaults, the traveler must file a refund claim no later than two days after the scheduled return date. The plan, however, doesn't protect travelers if the airline ceases operations after it has received payment.

Currently, there are five tour operators participating in the Travel Funds Protection Plan--Prima Holidays of Los Angeles; Future Tours of Boca Raton, Fla.; Bahamas Vacations, based in Allentown, Pa.; Places to Go, Coral Springs, Fla., and Goway Travel, Toronto. "We have six more tour operators in the final stages of setting up their participation now," Rice said. The bank's fees for managing the escrow account are paid by the individual tour operators. The tour operator does get to keep the interest on the consumer's money, which can help offset the cost of the bank's service. Tour operators also must submit to an outside audit on at least an annual basis.

"This program is open to any tour operator," Rice said. "We believe that the program will grow in popularity with tour operators since the 100% guarantee of safety for consumer funds for land costs can be a big help in marketing, and can help restore public confidence after a number of tour operator bankruptcies."

Participating tour operators must, in turn, obtain the agreement of the hotels and sightseeing companies they use in their programs.

"We saw this plan as a way to give confidence to consumers, as well as travel agents, who have watched one tour operator after another close down, often with the loss of the planned travel and the money that was supposed to pay for that travel," said Ron Greenspan, executive president of Future Tours, which offers packages in the Caribbean, Mexico and Latin America. "In no case does Future Tours receive any part of the consumer's funds until after services have been rendered."

Before entering the program, Future Tours secured the cooperation of such suppliers in its Caribbean tour programs as Sandals Resorts, Super Club Resorts, Merv Griffin's Paradise Island Resorts, Bolongo Resorts in St. Thomas, and other properties in Belize and Costa Rica.

"Some hotels haven't agreed, but if we do pre-pay for people on our tours, it's with our own money," Greenspan added. "The suppliers can verify that their money is being held by the bank."

Travel agents can also verify that the money paid by their customers is being held by the bank.